Tuesday, September 28, 2010

Pledge to America: Short-term Fiscal Restraint and Long-term Fiscal Folly

Michael Ettlinger and Michael Linden focus on the fiscal folly part of the Pledge:

The “Pledge to America” budget would mean $11.1 trillion in deficits over the next 10 years. By 2020, the federal budget deficit would be 6.3 percent of gross domestic product, the federal debt would exceed 93 percent of GDP, and interest payments on the debt would be more than $1 trillion a year. The budget deficit would be about $200 billion larger in 2020 under the “Pledge to America” plan than it would be under President Barack Obama’s budget, and over the next 10 years deficits would be $1.5 trillion higher than under the president’s budget. The substantial increase in deficits under the “Pledge to America” budget are due to the significant tax cuts that come from extending all expiring tax provisions and the implementation of several new tax cuts. Altogether, tax revenues under the “Pledge to America” plan would average 16.7 percent of GDP. During the last period the federal government ran balanced budgets revenues averaged 20 percent of GDP. The document claims that these cuts will be offset by spending reductions, but their proposals for these reductions add up to significantly less than their revenue cuts. The vast bulk of these spending cuts are achieved through what are described as “hard caps,” but they provide little detail as to what programs would be cut. The “Pledge to America” also includes a repeal of the Affordable Care Act. But since the ACA reduces deficits over the next 10 years, repealing it increases the deficit as well.

Also take a look at their chart which shows how the deficit would be larger under the Pledge after 2012 but smaller over the next couple of years. In other words, the Pledge has fiscal policy all backwards. We need more short-term fiscal stimulus in the short-run with fiscal restraint after we get back to full employment. Which is why the Pledge’s promise to create new jobs is just stupid from an economic perspective!

Wednesday, September 22, 2010

Summers Over

It’s Sept. 22, and I’m looking at the news about the departure of Larry Summers from the White House. I agree with most commentators on the left that Summers was a disaster for the country and the Democratic Party. He used his aggressiveness and the confidence Obama placed in him to narrow the range of options given consideration—already well reported in the case of the undersized stimulus, and to be reported in the future on financial reform. (I’m guessing at this, but only a little.) He contributed mightily to the miasma of disappointment that surrounds Obama and encourages the paleolithic right.

I wish I could say that policy post-Larry looks to improve, but it doesn’t. By all indications, Summers faithfully reflected Obama’s own economic predilections, and the next economic team will probably follow down the same path. From a PR point of view, it may matter who the public faces are, but I see no reason to expect a significant mid-course correction. I really, truly hope I’m wrong.

Incidentally, I never got the bit about Summers’ “brilliance”. (Try googling “Larry Summers” and “brilliant”.) I saw him in action only once, on an AEA panel, and, while he was very quick and sure of himself, his comments were not particularly insightful. I’ve read a number of his papers, and I think he’s competent, but his work generally lacks the element of aha-ness I associate with brilliance, as opposed to just getting the job done. Economists often seem smarter than they really are to the general public, because they are so well-schooled in a narrow, formulaic intellectual framework. They have fast answers that are clever, often technically sophisticated, and seem to tie up all the loose ends. In the lingo of an older style of scholarship, mainstream economics offers a “premature totalization”, and the appearance of brilliance without the substance.

Tuesday, September 21, 2010

Monday, September 20, 2010

Climbing Out of a Very Deep Hole

As AP reports the National Bureau of Economic Research has deemed that the Great Recession ended in June 2009. While it is true that real GDP has inched upwards over the past 4 quarters, real GDP as of 2010QII was only $13,191.5 billion per year as compared to $13,363.5 billion as of 2007QIV. With 2007 witnessing a growth rate that was less than 2 percent and with negative cumulative growth since then – we are far below full employment today. AP also reports that the President isn’t exactly celebrating this NBER announcement:

President Barack Obama saw little reason to celebrate the group's finding that the recession had ended. Appearing at a town-hall meeting sponsored by CNBC, Obama said times are still very hard for people "who are struggling," including those who are out of work and many others who are having difficulty paying their bills. "The hole was so deep that a lot of people out there are still hurting," the president said. It's going "to take more time to solve" an economic problem that was years in the making, he added.

The problem, however, is that we still don’t see any bold and significant policy measures that would get us out of this deep hole.

Sunday, September 19, 2010


This morning’s New York Times has an article about historic preservation in Italy: because of a shortage of funding, municipalities are renting out public buildings as billboards. Advertising revenue finances restoration, but at the cost of destroying the character of the country’s piazzas and palaces.

Here’s what I saw a couple of weeks ago in Turin. The photo was taken on the main square in the center of town; the building is the Palazzo Madama, an architectural gem. Its facade is draped by fabric to cover up the restoration work being performed on it. But note the ad—not only its size, but who it’s for: Mediaset, the TV empire owned by Silvio Berlusconi.

Saturday, September 18, 2010

Dr Doom Does A Doo Doo

In yesterday's WaPo, accessible as one of Mark Thoma's general links, http://www.economistsview.typepad.com , Nouriel Roubini sounded very reasonable for anyone addressing the utterly corrupt and degraded "catfish" deficit commission soldouts. He proposed a cut in payroll taxes, to be made revenue neutral by following through on the Bush-mandated end of his own tax cut for those earning more than a quarter of a million a year. He then proposes, absurdly unrealistically, that if his favored payroll tax cut were to be actually implemented, in a couple of years it would be rescinded. Well, kiddie-poos, anybody who thinks that the probability of such a tax cut once delivered being undone in a few years is greater than that the Bush tax cut for the rich will be undone by this Congress, well, there is this bridge in Brooklyn that I hear is for sale and I have access for selling...

So, I have great respect for good old Doctor Doom, but on this one he is a bit too far from Washington. His proposal sounds not too bad on paper, but in the real world it sucks. He is too far from Washington, and really just does not know what is going on. The bottom line is that for the foreseeable future social security benefits will be dependent on the revenues from the specific taxes set up to fund it, the boring old payroll taxes that he wants to "temporarily" cut. Sorry, Nouriel, but that ain't going to happen. The bastards will not undo that cut, and then they will come down with all their bought-out disgusting piece of shit commisssions to use that as an excuse to really seriously cut future social security benefits far beyond the abysmal one year increase in some future retirement age for eligibility the current catfish commish is pushing. Get it together, Dr. Doom; you are out out to lunch with this. Leave the recognized funding for social security alone, even if it is highly regressive. It is the deep key to the deepest social contract that American society from the New Deal has.


Friday, September 17, 2010

Deep Poverty Deepens In US

Robert Waldmann at Angry Bear has reported that the Census Bureau reports for 2009 that the poverty rate in the US rose to 14.3% of the population, while the deep poverty rate, those under half of the poverty line in income, rose to 6.3%. This last number is the highest seen since stats on that began being recorded in 1975. The previous high was 5.9% in 1983 at the end of the Reagan recession, when the overall poverty rate was higher than in 2009 at 15.2%. Waldmann hypothesizes that the difference is the result of the welfare "reform" of the 1990s, which replaced AFDC with TANF. He also notes that few seem to have noticed this. Mark Thoma links to this and some related discussions at http://economistsview.typepad.com/economistsview/2010/09/poverty-and-redistribution.html#comments .

I do not know if Waldmann is right about the source of this increased share of the poor who are very poor or not, although it is reasonable that he is at least partly right. He notes that most observers declared welfare reform a "success" around 2000, and the issue was put to rest. But careful observers then understood that much of that had to do with the booming economy that allowed many of the people being tossed off welfare to get jobs, and that when a serious recession hit, the new hole in the social safety net (can't stay on TANF for more than two years) would show up in increased poverty. Well, that recession is now, and the result should not be all that surprising.

Waldmann wonders about the lack of attention to this development, whatever its cause. I suspect that this lack is due to the focus many have had on the upper end of the income distribution. There we have indeed seen what may seem to be more dramatic developments, a huge surge in the share of national income going to the top one tenth of one percent of the population. This has indeed been the most dramatic shift and is an important matter. But in terms of human suffering, this increased share of the population at the rock bottom of the distribution in the sub-poverty basement may be more important.

Economics Detox Program

Cassidy, John. 2009. How Markets Fail: The Logic of Economic Calamities (New York: Farrar, Straus and Giroux).

105: "In 1996, when I set out to research an article for The New Yorker about the state of economics, I came across a lot of unhappiness and criticism. The economics department at Morgan Stanley, for example, was refusing to hire any economics Ph.D.s unless they had experience outside of academe. "We insist on at least a three-to-four-year cleansing experience to neutralize the brainwashing that takes place in these graduate programs," Stephen S. Roach, the firm's chief economist, told me. "Academic economics has taken a very bad turn in the road," Mark Dadd, who was then the top economist at AT&T and the chairman or the National Association for Business Economics, said. "It's very academic, very mathematical, and it really doesn't -- I want to choose my words carefully here: it is nothing like as useful to the business community as it could be."

Tuesday, September 14, 2010

Tax Increases on the Rich Will Not Greatly Reduce Aggregate Demand

Timothy Homan reports on a recent analysis from Chris Cornell and Mustafa Akcay of Moody’s Analytics that confirms what those of us who have been preaching the policy implications of the Life-Cycle Model have suspected:

Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

The two Moody’s economists also note that wealth effects from changes in the value of stock portfolios have important impacts on how much the well-to-do consume. I have to wonder if Harm Bandholz of UniCredit Global Research grasps any of this in light of the following:

Economist Harm Bandholz said discouraging the wealthy from spending could weaken the economy, something Republicans argue will happen if the Bush-era tax cuts expire. “Most of the consumption growth is coming from the higher- income groups,” said Bandholz, chief U.S. economist at UniCredit Global Research in New York. “The lower income groups, they are barely living hand-to-mouth.”

Duh! Consumption among the wealthy is up because the stock market has revived not because they got a tax break. And “living hand-to-mouth” is essentially facing borrowing constraints which represents an exception to the Life-Cycle Model. So tax cuts for the poor will have a larger impact on consumption than tax cuts for those who are not borrowing constrained.

Horan also relates this analysis to the political debate over tax policy.

Saturday, September 11, 2010

A Reminder On 9/11 That Al-Qaeda Is Un-Islamic

Readers of this blog probably do not need to be reminded of this, but given all the recent surge of anti-Islamic hyseria in the US, it is useful to remember how far off some of the claims being made now are. As is often the case, Juan Cole provides some perspective today at http://www.juancole.com. He lists five things that al Qaeda has done or attempted that are simply against clear statements in the Qur'an and the Hadith: 1) There is to be no attempt to coerce anyone into becoming a Muslim (free choice is crucial), 2) Aggressive war is forbidden, only defensive war is allowed, 3) A "civil engineer" cannot declare war, it must be declared by a recognized community leader, which today would be a president or prime minister or monarch, 4) Non-combatants are not to be killed or hurt, 5) Sneak attacks are not allowed, war must be announced well ahead of time.

Go in peace all of you on this sad day.

Friday, September 10, 2010

July’s Trade Uptick: Underwhelming

The good news is that the Bureau of Economic Analysis reported yesterday that the US trade deficit decreased month-on-month from $49.8B to $42.8B in July. While monthly figures are intrinsically noisy and subject to later revision, we should be grateful for any shaft of sunlight.

Alas, on closer inspection there is little to be grateful for. First, of the $7B movement, about $4.2 is accounted for by a decline in imports. This would be fine if the US economy were growing, and the drop in imports represented expenditure-switching. The reality, however, is that growth in the US is sputtering at best, and that fewer imports reflect general weakness in spending.

The export side, which is truly critical not only to domestic recovery but also global rebalancing, is even more disappointing. Of the $2.8B increase, fully $2.3B are in civilian aircraft, an especially lumpy category.

All in all, not much to crow about.

Thursday, September 9, 2010

Confessions of a Serial Liberty-Reducer

Since I have been placed by Econ Journal Watch in the leading ranks of economists who have signed “liberty-reducing” petitions, I figure I should respond somehow. An obvious first reaction would be, if this is all it takes to be grouped with such distinguished and thoughtful individuals as Jamie Galbraith and Eileen Applebaum (not to mention our own Michael Perelman), please give me more to sign. But maybe I should say something about this idea of liberty-reduction as well.

The authors openly state that they rely on a single principle to gage liberty, noncoercion by government. By this standard, for instance, an increase in the minimum wage is liberty-reducing, since it increases the number of wage offers that would be criminalized. This is not just a theoretical possibility; in Los Angeles the co-owners of a chain of carwashes were forced to pay over a million dollars to their workers for minimum wage violations, a plea bargain they made in order to avoid long prison sentences. There can be no denying that the minimum wage, whether you favor it or not, has an illiberal aspect.

Of course, the starting point for evaluating the single-minded reliance on noncoercion as the barometer for liberty is normally Isaiah Berlin’s essay, “Two Concepts of Liberty”. Berlin contrasts noncoercion, or “negative” liberty, with “positive” liberty, which enables individuals to make the choices they truly prefer. Berlin’s treatment confuses three different variants of liberty, however, so it is a good idea to put his essay down and think more carefully about the issue. The most precise definition of positive liberty sees it as applicable to the individual level, but pertaining to the feasibility of choosing X (what one prefers) rather than simply the absence of a coercive constraint on choosing X, as negative liberty requires. To the extent that the minimum wage provides more resources for people at the low end of the labor market, so they can enjoy a wider range of choice over access to the necessities and comforts of life, it enhances positive liberty at the expense of negative. (Workers are denied the choice of accepting, and employers the choice of offering, a sub-minimum wage.) I will say in passing that I accept Berlin’s judgment that, of the two, negative liberty is more precious in a wide variety of situations, but I think I can demonstrate that in another set of situations, also quite large, positive liberty can have as much or more “liberty content” as its negative twin. (This is due to the interdependent nature of economic and social life, which can sometimes make the costs of not being supported by others comparable to the costs of being coerced by them—so that the threat of nonsupport becomes coercive.)

Nevertheless, there are still two more types of liberty that have large followings. One is collective liberty, the freedom to engage in collective action on the part of a group with a common identity or shared interests. The great theorist of this notion was John Dewey; see, for instance, his book Individualism Old and New. Economists steeped in game theory should have no problem in understanding why such a conception of liberty is necessary and popular. At an intuitive level, if there is any basis for people conceiving of themselves as a “we” instead of simply a set of “I’s”, there ought to be a corresponding idea of joint liberty. It should also be obvious that there is great potential for abuse if the “we” is insufficiently elective, or if inadequate allowance is made for individual differences within even the most cohesive groups—but all conceptions of liberty are dangerous if they are blind to the others.

The fourth conception arose during the Romantic period in the late eighteenth and early nineteenth centuries and is associated, in the United States, with writers like Emerson and Thoreau. If collective liberty is situated above the level of the individual, “inner” liberty is two levels down: it is about freedom from convention, habit, and any other barriers to the discovery and cultivation of one’s genuine potential. We know this today as the ethos of rock ‘n roll: the role of the singer or guitar hero is not to be the most technically proficient (although this is admired), but to reveal to the audience his or her deepest, most genuine self, a role model for this kind of liberation.

Schooled by Berlin, we often think of tradeoffs between competing notions of liberty, and this is undoubtedly true, but with four distinct possibilities to consider, there may be synergies as well. The case of the minimum wage is instructive. Here is my own story: I came of age during the 1960s, when there was full employment and the real minimum wage was far higher than it is today. Thanks to the counterculture, I took time out to explore different life directions: I spent years in underground newspapers and, later, community radio to see if I wanted to be an “alternative” journalist. I spent a few months trying out the life of a professional chess player. (OK, I was no Ken Rogoff, but I did combine chess journalism, instruction, and competitive play at a lower level.) I also dabbled in other stuff that we can leave to the side right now.... How was this possible? The high minimum wage, I would argue, had a lot to do with it. I felt free to experiment because, at any time, I could find a low-labor-force-attachment job that paid enough to keep me afloat. In other words, the positive liberty I enjoyed thanks to a high minimum wage also enhanced my inner liberty to find myself during the typical finding-oneself years. I think young people coming of age today have a lot less of this freedom, and this is sad.

Closing note: the authors of the EJW article speak of “ideological” biases of economists based on the extent to which they support or oppose the noncoercive conception of liberty. I see it differently. To me, to be ideological is to be unable to recognize the claims of competing points of view. For instance, raising the minimum wage increases some kinds of liberty of some people, and reduces other kinds of others. You strike the balance according to your values and judgment. But a nonideological view demands that you bear in mind that, even though you may think the balance falls on the side of raising the wage floor, this does not cancel out the negative consequences. If a thousand workers are better able to put food on the table, but ten teenagers are unable to get an after-school job of a few hours a week, the benefits to the larger group do not erase the costs to the smaller. Ideological thinking typically means putting on only one set of glasses and disregarding other points of view. Nonideological thinking means being able to live with contradictions.

In this sense, I think the categorizers and not (necessarily) the categorized in the EJW article are the ideologues.

Boehner’s Two-Step Job Destruction Plan

Ezra Klein rightfully criticizes what he calls John Boehner's stale 'two-step job creation plan' as something that could lead to larger long-term deficits. But let’s look at what the likely effects would be for the current weak economy. Step 1 would be to roll back Federal spending by almost $100 billion per year.

The difference in what Boehner as his step 2 is proposing versus the President is proposing amounts to a difference in tax collections from the very rich that is less than $100 billion per year. If we took the Peter Orszag proposed political compromise and extended these tax cuts for the very rich for only a couple of years, we would have a temporary tax cut for the well to do who are not likely liquidity constrained The life cycle model says most of this will be saved with very little aggregate demand impact. The Ricardian Equivalence extension of this model says all of it will be saved with zero aggregate demand impact.

Combining the two steps – we would clearly have a reduction in fiscal stimulus and hence a reduction in aggregate demand. The Boehner proposal is therefore not a job creation plan but rather a recipe for another recession.

Wednesday, September 8, 2010

Progress in Handling of Bank Bailouts

The New York Times reports that the emerging democracy of Afghanistan is taking a strong stand against bank bailouts, that was an interesting twist. Yes the government is calling upon others to bailout the bank, but that doesn't mean that the government is not willing to do is its part. It sent soldiers to prevent workers from entering the bank to claim their back wages. At least, the new government, for all its faults, clearly understands the priorities of a modern capitalist system.


CNNMoney Fails Introductory Macro

OK – I just ripped off the title of Peter Dorman’s ripping of Peter Orszag’s NYTimes oped but how else can you describe the CNN/Money piece entitled Boehner unveils his own plan to aid economy?. Boehner and other GOP leaders propose to cut government spending which would deepen the recession. How can any reporter say this is an aid to the economy? Could at least one reporter have the intelligence and integrity to entitle such a piece Boehner unveils his own plan to screw economy? If you any decent reporting on such GOP gibberish – let us know.

Tuesday, September 7, 2010

No Increase In Social Security Age Eligibility!

Ezra Klein had an excellent piece in Sunday's WaPo criticizing the current push from the Deficit Reduction Commission to raise the retirement age for social security, which he notes seems to have bipartisan support on the commission and is the item they are most enthusiastic about, even though it would do a big fat zero about the size of the deficit in the near term and is widely opposed by the US population. Mark Thoma links to it and quotes a big chunk of it along with additional comments at http://economistsview.typepad.com/economistsview/2010/09/making-social-security-less-generous-isnt-the-answer.html#comments .

Klein notes that many supporting this age increase point to a large increase in life expectancy over the last 75 years, but much of this is due to a sharp decline of infant mortality. Men at 60 do not have that much greater life expectancy now than did men at 60 back then. Furthermore, there is a huge distributional factor: most of the increase in such expectancy has been among higher income people, and many of those people work in jobs that do not involve physical labor or are boring and oppressive, where people really would like to retire, but with the collapse of the defined benefit pension plans means more are going to rely on social security.

It really is astounding how totally sold out these commission members are. Almost nobody wants this, and it does little for near term deficits, but Klein notes that other things such as further reforming the medical system or reducing defense spending or raising taxes all seem more politically fraught, even if the public does not like this raising the age requirement. Indeed, the majority of workers who reach 62, take social security then, not waiting for the higher benefits of retiring at 66 or 70.

An Explanation of Social Security, the Trust Fund and National Savings for Those Who Are Still Wondering

A while back, I lambasted Matt Bai of The New York Times for saying that the Social Security Trust Fund, because it is invested in Treasuries, is just a pile of worthless IOU’s the government won’t be able to redeem. I made fun of his suggestion that Uncle Sam is teetering on the edge of default, but there is a deeper issue I didn’t address. Bai, despite his economic confusions, is conveying a mainstream sentiment, endorsed by the broad center of American politics, that the drawing down of the Trust Fund is an impending catastrophe for the federal budget and national savings. Every T-bill sold back to the government is seen as another arrow in the heart of fiscal prudence, and we must somehow find a way to keep the fund at its current level by cutting benefits or raising payroll contributions.

Here I want to shed some light on the overall relationship between pensions and savings.

First, imagine a society with no money at all. Suppose it is an isolated fishing community: early each morning, every able-bodied adult sets off in a boat and dips a net into an ever-renewing fishing bank. Then they come home, unload their fish and eat them. This is the entire economy—fish, fish, fish.

Now introduce retirement. When people grow old, they lose the ability to fish, or perhaps they just want to do something different in the years remaining before they die. (Maybe they want to take up surfing.) How can they do this without starving? There is only one answer: their younger compatriots must eat fewer fish than they catch and divert the surplus to their elders. There is simply no way for people to “save” fish when they are working for consumption in future years, since the fish are perishable. This society may have complicated arrangements, perhaps involving pieces of paper (IOU’s) that convey entitlements to various quantities of fish, but in the end there is no escaping the reality that the working population supports the concurrent retired population at whatever level of abundance is agreed upon. If the ratio of retirees to working fishers rises, or if retirees want to eat more fish in their golden years, either the working population has to increase its fishing efficiency (catch more fish per person) or reduce its own consumption, or both.

Now consider the Social Security system. The Trust Fund has accumulated a huge portfolio of government securities, and in a few years it is scheduled to begin a slow process of cashing-in—selling securities for money that can be used to write checks to recipients. This money will come from the Treasury, which can raise it by selling new securities. This will raise the public debt unless non-SS related deficits are brought down by the same amount, since the ownership of Treasuries will have shifted from the government (the Trust Fund) to the public. That is what the SS alarmists are pointing to.

But, for the sake of argument, suppose that we had no Social Security system at all—that all pensions were privately financed out of the personal savings accumulated before retirement. Upon retiring, individuals would stop accumulating savings and begin drawing them down. Say they had bought only private securities, like stocks, corporate bonds and shares in equity funds. To pay for their retirement consumption, they would have to sell this paper, and those still working would have to buy them. The money for these financial purchases could come from either increased savings (less consumption) by the working population, improvements in productivity (increased real income from work), or increased debt (borrowing by issuing new debt in order to purchase retiree debt). In other words, it’s the same set of alternatives faced by the government in dealing with Social Security.

The moral of the story is that, while the system of paper assets that governs wealth and debt is extremely important for distributional issues at the individual level, the overall relationship between retiree consumption, worker savings and productivity is deeper and ultimately determinate. Our fishing community either learns how to fish better, or its working members tighten their belts in order to feed their elders, or they make their elders tighten their belts. If they have a connection to other fishing communities, they can also borrow fish from their neighbors, with the understanding that this may reduce their living standards in the future. If you follow the money in the Social Security case, you find the same factors. Redeeming a bond is like supplying fish and must be financed through either greater productivity, reduced consumption or debt.

At the level of paper assets, Social Security is healthier than it has ever been in its history. At the level of the division of the national product between working and retired people, the political dimension is unavoidable. Overall, productivity growth has tended to exceed the rate of increase in the dependency ratio (retired to working population), but there will always be a tradeoff between the rate of growth in the consumption of workers versus that of retirees. This is less visible in the arena of private savings, since the claims of retirees upon working-age citizens are made in a decentralized way through financial markets. With Social Security, the process is centralized and guided by public decisions. The tradeoffs remain the same.

What people like Matt Bai are saying is that, as the retiree population continues to grow, it will force the rest of us to increase our borrowing because we refuse, on political grounds, to take steps that would impinge on our consumption. To avoid this, we should see to it that the growth in retiree consumption is curtailed. In my earlier post I referred to this as the catfood option, but maybe this was a mistake: cats love to eat fish.

Orszag Fails Introductory Macro

Let’s leave aside the larger questions having to do with how and why the US economy got into the current bind—global imbalances, the political economy of investor hegemony, etc.—and look only at the immediate fiscal and employment effects. What’s wrong with Peter Orszag’s suggestion in today’s New York Times that the demands of the short run output gap and long run fiscal sustainability can be met by extending the Bush tax cuts for another two years, but written in disappearing ink, with a mandatory end after that?

Simple: he forgot the balanced budget multiplier. He could accomplish much more of the first goal without any cost to the second by proposing a different plan: end the tax cuts immediately while simultaneously appropriating an equivalent amount of money to a fund that could be spent on various public projects or simply rebated to the states to reduce their own program cuts. If he thinks two years is the magic timespan, he could write in two years’ worth of the revenue increases due to ending the tax breaks. The economics that every introductory students learns, and which is in fact unassailable, should tell him that the stimulative effect of an equal dose of higher taxes and higher spending is greater than the equivalent of reduced taxes and reduced spending. Of course, this difference is even greater in the case of the Bush tax cuts, which were overwhelmingly tilted toward high-income households with a much lower marginal propensity to consume. (And I leave out equity considerations, which are not supposed to infect macroeconomic analysis.)

Note to instructors: clip this op-ed and use it in class after you cover fiscal policy. See how many students can outsmart this former head of the CBO and OMB. I realize this is setting the bar a bit low, but they might still get a charge out of it.

Economics and Asperger’s

Anyone who has been paying attention will notice that a lot of economists are Aspies. True, we don’t have any hard evidence on this, but just look around at an ASSA meeting. You will see lots of stiffly-moving men lost in their own worlds, slamming into or just ignoring the people milling around them. Then, of course, we have the testimony of “autistic economics”, portrayals of human behavior that elevate Aspie-like eccentricities to an operating norm for society.

There are many candidate explanations for this. (1) Economics, by its nature, leans in an abstract, formalistic direction, like music, math and chess, and all these fields seem to attract and make effective use of the skills of Aspies. (2) Academic life, more generally, exalts feats of the intellect over what is now called “emotional intelligence”, especially at large research institutions. (Prediction: you will see far fewer Aspie-economists in small liberal arts colleges, where collegiality and connection to students are more highly valued.) (3) The peculiar representation of human society as a field of colliding particles, each pursuing its own individual, unrelated trajectory, ought to be well received on Planet Asperger.

Whatever the etiology, the prevalence of Asperger’s among economists and the call to reform the discipline raises the question, how to raise the level of social awareness? On a personal level, I highly recommend the work of Erving Goffman, the pioneering sociologist who studied face-to-face and other immediate forms of interaction. His books on micro-norms and the nuances of language and bodily expression offer a virtual how-to manual for Aspies trying to shore up their social skills. It’s painless, too, because he does it in the context of highly analytical, abstracted discourses on institutions, roles and expectations. For a fuller run-down, see this fine appreciation by Daniel Little at Understanding Society.